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Monday, September 08, 2008

Price of fear = $3bln

09/04/2008 - Moscow News by Marina Pustilnik - The German government is considering an option to build up its natural gas reserves to protect the country's fuel supplies in case a crisis hampers gas imports. The news was reported this week by the German paper Frankfurter Allgemeine Zeitung (FAZ), which quoted a representative of the country's Economy Ministry. According to different sources, Germany imports anywhere from 33 to 44 percent of its total gas consumption from Russia, and there is no doubt that the announcement about planned natural gas reserves follows a recent spat between Russia and Germany over the situation in Georgia. Even though the Russian authorities had declared that Russia will continue to be a reliable partner and gas supplier for European countries, Germany's decision shows that it may not be convinced. LATEST NEWS - Georgia rejects Russian claim on conflict deaths 21:46 15/09/2008 |The Georgian Foreign Ministry rejected on Monday a Russian report that Tbilisi had lost up to 3,000 men in the five-day war in August between the two countries over South Ossetia, calling the claim "disinformation." Aeroflot makes first payments to Urals plane crash families 21:38 15/09/2008 |Aeroflot has so far paid over 4.8 million rubles ($186,770) in compensation to the families of those people killed in Sunday's air crash in the Urals, the head of the company's insurance department said Monday. EU ministers approve international probe into Georgia conflict 21:06 15/09/2008 | A proposal to hold an international investigation into last month's conflict in Georgia has been backed by the 27 EU foreign ministers, the French foreign minister said on Monday. Russia's Baltic Fleet starts week-long exercise 20:25 15/09/2008 |Russia's Baltic Fleet has launched a week-long scheduled exercise, the navy press service said on Monday. more news Nothing has yet been decided as the German authorities say they have only just started consultations with companies at both the local and international level. Moreover, there is already some opposition to the idea. Ruhrgas, one of Gazprom's principal partners in Germany, spoke up against the creation of the reserve. The reason given by the company is that the natural gas market differs from the oil market in that it continues to be ruled by long-term contracts. If Germany were to decide to stockpile gas reserves, this would lead to further growth of natural gas prices, which are already showing no signs of slowing down. In addition to this, storing natural gas is a dangerous and expensive venture. According to the estimations made by Germany's foreign trade association for mineral oil and energy, storing gas for an additional 90 days of supplies would cost some 2 billion euros ($3 billion) a year. So the price of fear and uncertainty is $3 billion. Is it really worth it? Does Germany have anything to fear? I personally think that the German authorities are being overcautious. Yes, Gazprom is a heavy-footed leviathan, whose monopoly structure should have been broken up a long time ago. Yes, natural gas production in Russia is certainly not growing, while consumption is. And yes, Gazprom's previous actions in Ukraine and Belarus, when supplies were cut over price disagreements, could be interpreted as being politically rather than economically motivated. But it's a very long stretch to imagine that German gas supplies would in any way suffer because Angela Merkel had cri­ticized her colleague Dmitry Med­vedev for his decision to recognize the independence of South Ossetia and Abkhazia. Uninterrupted gas deliveries to Europe as a whole and to Germany in particular (Gazprom's largest and most important European partner) are a point of pride for the Russian authorities and it will take much more than political disagreements to break that flow. Not only that, but the European deliveries are a very profitable venture for Gaz­prom and Russian authorities and nobody is willing to voluntarily kill the goose that lays the golden eggs. If I were the German authorities, I would listen to the specialist from Ruhrgas and give up on the idea of stockpiling natural gas reserves. There are plenty of other ways to spend $3 billion a year if you are looking to secure your gas deliveries from Russia - like investing them in gas production in cooperation with independent Russian gas producers or using them to wine and dine Polish and Lithuanian officials who continue their stern opposition to the Nord Stream gas pipeline project in hopes that they will finally relent and give the construction the green light it so needs. Russia is an unpredictable partner on the political arena, but it is very predictable when it comes to earning money. Paying $3 billion a year for storage (and upping the market price of natural gas in the process) is too steep a price to discover that Germany has no reason to fear for its gas supplies.

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